U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_____________________________________________
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 0-18824
_________________________________________________
CORPORATE VISION, INC.
(Exact name of small business issuer as specified in its charter)
Oklahoma (State or other jurisdiction of incorporation or organization) | 73-1579755 (IRS Employer Identification No.) |
3 Broad Street, Suite 300
Charleston, South Carolina 29401
(Address of Principal Executive Offices)
(843) 534-1330
(Issuer's telephone number)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ; No X
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 76,247,205 shares of its Common Stock, $0.01 par value, as of August 13, 2002.
CORPORATE VISION, INC.
FORM 10-QSB REPORT INDEX
| | Page No. |
PART I. FINANCIAL INFORMATION | 3 |
Item 1. Financial Statements | 3 |
| | Consolidated Balance Sheets as of June 30, 2002 (Unaudited) and December 31, 2001 (Audited) | 3 |
| | Unaudited Statements of Operations for the Three Months Ended June 30, 2002 and 2001 | 5 |
| | Unaudited Statements of Operations for the Six Months Ended June 30, 2002 and 2001 | 6 |
| | Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 | 7 |
| | Notes to Consolidated Financial Statements for the Period Ended June 30, 2002 | 9 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation | 15 |
PART II. OTHER INFORMATION | 16 |
Item 1. Legal Proceedings | 16 |
Item 2. Changes in Securities | 17 |
Item 3. Defaults on Senior Securities | 17 |
Item 4. Submission of Matters to a Vote of Security Holders | 17 |
Item 5. Other Information | 17 |
Item 6. Exhibits and Reports on Form 8-K | 17 |
Signatures | 18 |
The Company's independent auditors have not completed their review of the financial statements herein because they have not completed their audit of Stony's Trucking Co., which the Company acquired on March 5, 2002, for the years ended December 31, 2001 and 2000. The Company anticipates filing an amended 10-QSB in two to three weeks to make certain adjustments to the financial statements based upon the results of the audit of Stony's Trucking Co.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CORPORATE VISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2002 and December 31, 2001
| | |
ASSETS | June 30, 2002 (Unaudited) | | December 31, 2001 (Audited) |
CURRENT ASSETS | | | |
Cash | 35,382 | | $ 3,439 |
Accounts receivable, net | 5,359,840 | | 265,284 |
Federal income tax receivable | 450,000 | | -- |
Prepaid expenses | 459,516 | | 3,109 |
TOTAL CURRENT ASSETS | 6,304,738 | | 271,832 |
| | | | |
PROPERTY AND EQUIPMENT, NET | | | |
Buildings and leasehold improvements | 412,261 | | -- |
Vehicles | 1,328,595 | | 251,598 |
Computers and office equipment | 44,325 | | 44,325 |
Heavy Equipment | 343,043 | | 39,843 |
Furniture and fixtures | 32,517 | | 21,416 |
TOTAL PROPERTY AND EQUIPMENT | 2,160,741 | | 357,182 |
Less accumulated depreciation | 195,411 | | 75,704 |
| | | | |
NET PROPERTY AND EQUIPMENT | 1,965,330 | | 281,478 |
| | | | |
OTHER ASSETS | | | |
Investments | 15,000 | | 15,000 |
Goodwill | 1,523,267 | | 1,514,534 |
TOTAL OTHER ASSETS | 1,538,267 | | 1,529,534 |
| | | | |
TOTAL ASSETS | $ 9,808,335 | | $ 2,082,844 |
Accompanying notes are an integral part of the consolidated financial statements.
Corporate Vision, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY | June 30, 2002 (Unaudited) | | December 31, 2001 (Audited) |
CURRENT LIABILITIES | | | |
Accounts payable trade | $ 4,366,219 | | $ 439,921 |
Note payable--related party | 2,008,759 | | 50,000 |
Current portion of long-term debt | 5,443,232 | | 43,152 |
Accrued payroll, commissions and payroll taxes | 214,045 | | 321,198 |
Other current liabilities | - | | 100,265 |
Deferred Revenue | 5,000 | | -- |
Accrued loss contingencies | -- | | 95,000 |
TOTAL CURRENT LIABILITIES | 12,037,255 | | 1,049,536 |
| | | | |
Long-term debt | 58,122 | | 72,272 |
| | | | |
TOTAL LIABILITIES | 12,095,377 | | 1,121,808 |
| | | | |
STOCKHOLDERS' EQUITY | | | |
Series A non-cumulative convertible preferred stock, $0.01 par value; 1,000,000 shares authorized; 152,889 shares issued and outstanding at June 30, 2002 and December 31, 2001 | 1,529 | | 1,529 |
Common stock, $0.01 par value, 200,000,000 shares authorized; 75,205,669 and 43,150,590 shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively | 752,057 | | 431,056 |
Additional paid-in capital | 14,816,372 | | 10,391,900 |
Retained earnings (deficit) | (17,857,000) | | (9,863,449) |
| | | | |
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | (2,287,042) | | 961,036 |
| | | | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 9,808,335 | | $ 2,082,844 |
Accompanying notes are an integral part of the consolidated financial statements.
CORPORATE VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2002 and 2001
(Unaudited)
| 2002 | 2001 |
| | |
Revenues | $ 10,774,003 | $ 72,393 |
| | |
Expenses | | |
Cost of Sales | 9,431,823 | 19,720 |
Selling, General and Administrative | 1,278,394 | 171,622 |
| | |
Operating Income (Loss) | 63,786 | (118,949) |
| | |
Other Income (Expense) | | |
Interest expense | (163,487) | (526) |
Gain on sale of asset | -- | 17,480 |
Unrealized loss on trading securities | -- | (3,736) |
Total Other Income (Expense) | (163,487) | 13,218 |
| | |
Loss before income taxes and cumulative effect of accounting change | (99,701) | (105,731) |
| | |
Provision for income taxes | -- | -- |
| | |
Income (Loss) before cumulative effect of accounting change | (99,701) | (105,731) |
| | |
Cumulative effect of accounting change | 450,000 | -- |
| | |
Net Income (Loss) | $ 350,299 | ($ 105,731) |
| | |
Basic and diluted loss per common share before cumulative effect of accounting change | $ (0.001) | $ (0.004) |
| | |
Basic and Diluted Earnings Per Share of Common Stock | $ 0.005 | $ (0.004) |
| | |
Weighted Average Common Shares Outstanding | 75,205,669 | 26,537,657 |
The accompanying notes are an integral part of these financial statements.
CORPORATE VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
| 2002 | 2001 |
| | |
Revenues | $ 13,764,005 | $ 72,451 |
| | |
Expenses | | |
Cost of Sales | 12,054,403 | 19,720 |
Selling, General and Administrative | 2,336,707 | 365,793 |
| | |
Operating Income (Loss) | (627,105) | (313,062) |
| | |
Other Income (Expense) | | |
Interest expense | (200,887) | (526) |
Gain on sale of asset | -- | 17,480 |
Unrealized loss on trading securities | -- | (3,736) |
Total Other Income (Expense) | (200,887) | 13,218 |
| | |
Loss before income taxes and cumulative effect of accounting change | (827,992) | (299,844) |
| | |
Provision for income taxes | -- | -- |
| | |
Income (Loss) before cumulative effect of accounting change | (827,992) | (299,844) |
| | |
Cumulative effect of accounting change | (7,165,558) | -- |
| | |
Net Income (Loss) | ($ 7,993,550) | ($ 299,844) |
| | |
Basic and diluted loss per common share before cumulative effect of accounting change | $ (0.012) | $ (0.013) |
| | |
Basic and Diluted Earnings Per Share of Common Stock | $ (0.120) | $ (0.013) |
| | |
Weighted Average Common Shares Outstanding | 66,745,967 | 22,350,596 |
The accompanying notes are an integral part of these financial statements.
CORPORATE VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
| 2002 | 2001 |
| | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | |
Net income (loss) | ($ 7,993,550) | ($ 299,843) |
Adjustments to reconcile net loss to net cash used by operating activities: | | |
Cumulative effect of accounting change | 7,165,558 | -- |
Depreciation | 120,679 | 9,073 |
Gain (Loss) on disposal of assets | 8,731 | (17,480) |
Net unrealized loss on trading securities | | 3,736 |
Common Stock issued for services | 818,973 | 126,350 |
Changes in certain assets and liabilities: | | |
(Increase) in accounts receivable | (869,128) | (15,053) |
(Increase) in other current assets | (49,390) | (5,812) |
(Increase) in related party receivable | -- | (27,176) |
Increase in accounts payable | 1,521,324 | -- |
(Decrease) in contingent liabilities | (95,000) | -- |
(Decrease) increase in other current liabilities | (660,915) | 160,705 |
Total Adjustments | 7,960,832 | 234,341 |
| | |
NET CASH (USED) BY OPERATING ACTIVITIES | (32,718) | (65,502) |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | |
Cash paid in acquisition of subsidiary | (50,000) | 2,375 |
Proceeds from sale of available for sale securities | -- | 29,980 |
Purchase of property, plant and equipment | (403,200) | -- |
| | |
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES | (453,200) | 32,355 |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | |
Proceeds from issuance of common stock for cash | 89,350 | -- |
Common stock to be issued | -- | 80,200 |
Proceeds from short-term debt - related party | 357,273 | -- |
Proceeds (payments) of line of credit | 71,238 | (20,831) |
| | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 517,861 | 59,369 |
| | |
NET INCREASE (DECREASE) IN CASH | $ 31,973 | $ 26,222 |
| | |
CASH AT BEGINNING OF PERIOD | $ 3,439 | $ -- |
| | |
CASH AT END OF PERIOD | $ 35,382 | $ 26,222 |
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest | $ 284,613 | $ 526 |
Non-cash Investing and Financing Activities: | | |
Common stock issued to acquire subsidiary, net of cash received | -- | $ 1,659,813 |
Common stock received in lieu of cash | -- | $ 60,000 |
The accompanying notes are an integral part of these financial statements.
CORPORATE VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 (Unaudited)
NOTE 1 - COMPANY BACKGROUND
Corporate Vision, Inc. ("the Company") was incorporated in Oklahoma on November 20, 1990. The Company went through a variety of business ventures, mostly associated with the technology industry, from the date of inception through 1996. In 1997, the Company discontinued its primary operations and liquidated the majority of its assets.
In 1998, the Company reentered the development stage after the remaining board members reactivated the Company and changed its primary business focus to providing investment and merchant banking services to privately held companies interested in making an initial public offering.
In 2001, a new board of directors and new officers were appointed. Under the direction of the new management team, the Company acquired Southeastern Research and Recovery, Inc. a waste disposal company in the business of solidifying non-hazardous liquid waste, operating in the Southeastern United States.
In March 2002, the Company acquired Stony's Trucking Company and Subsidiaries. Stony's is a non-asset based common and contract carrier with operations spanning throughout the continental United States. Additionally, the Company has commenced operations of newly formed subsidiary CV Transportation, Inc. that is designed to gain efficiency in backhauling freight.
NOTE 2 - BASIS OF PRESENTATION
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The condensed consolidated financial statements include the actions and results of operations of the Company and its wholly-owned subsidiary, Southeastern Research and Recovery, Inc. for the six month period ended June 30, 2002 and CV Transportation, Inc. from its inception in March 2002. The condensed consolidated financial statements further includes the accounts and results of operation of its wholly-owned subsidiary, Stony's Trucking Company, Inc. for the period from March 5, 2002 (date of acquisition) to June 30, 2002. Since the audit of Stony's Trucking Company, Inc. has not been comp leted, there may be adjustments that could have a material impact on first and second quarter 2002 financial statements. Once the audit is completed, an amended Form 10-QSB will be filed for the first and second quarter of 2002. Management believes that all other adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. All material intercompany transactions and balances have been eliminated in consolidation. Operating results for the six month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-KSB for the year ended December 31, 2001.
The financial statements of the Company have been prepared on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, because of the Company's discontinuance of certain historical operations and new strategic direction, such realization of assets and liquidation of liabilities is subject to uncertainty. Further, the Company's ability to continue as going concern is highly dependent on the success of its ability to continue to raise sufficient operating capital and/or debt financing and its ability to achieve profitable operations.
Policies and Procedures
Revenue and Expense Recognition
The Company recognizes transportation revenue as earned on the date of freight delivery to consignee. Related expenses are recognized as incurred.
Change in Accounting Principles
In July 2001, the FASB issued Statements of Financial Accounting Standards ("Statement") No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). These standards change the accounting for business combinations by, among other things, prohibiting the prospective use of pooling-of-interests accounting and requiring companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, goodwill and intangible assets deemed to have an indefinite useful life will be subject to an annual review for impairment. Upon adoption of FAS 141 and FAS 142 in the first quarter of 2002, the Company recorded a one time noncash charge of approximately $7.6 million to reduce the carrying value of its goodwill for Stony's Trucking Company. Under FAS 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. Such charge is non-operational in nature and is reflected as a cumulative effect of an accounting change in the accompanying condensed consolidated statement of operations.
Derivatives and Hedging Activities
The Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.
The Company holds derivative financial instruments for the purpose of hedging the risks of certain identifiable and anticipated transactions. In general, the type of risk hedged is related to the variability of future earnings caused by changes in interest rates. The Company hedges its exposure to interest rate fluctuations through the use of interest rate swaps.
Derivatives are held only for the purpose of hedging such risks, not for speculation. Generally, the Company enters into hedging relationships such that changes in the fair values or cash flows of items and transactions being hedged are expected to be offset by corresponding changes in the values of the derivatives. At June 30, 2002, hedging relationships exist for indebtedness.
NOTE 3 - ACQUISITIONS
On June 21, 2001, the Company acquired all of the outstanding common stock of Southeastern Research and Recovery, Inc. ("SRR") in exchange for 22,500,000 shares of restricted common stock of Corporate Vision, valued at $1,662,188. Restricted stock prevents the holder from having the ability to market the securities for one year following the date of issuance.
The pro forma unaudited results of operations for the six months ended June 30, 2001, assuming the purchase of SRR had been consummated as of January 1, 2001 were as follows:
| | | Six Months Ended June 30, 2001 |
Revenues | | $1,037,144 |
Net income | | 104,441 |
Net loss per common share: | | |
Basic | | 0.00 |
Diluted | | 0.00 |
Effective January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets". See Note 2 for further details relating to the impact of the change in accounting principle for goodwill.
On March 5, 2002, Corporate Vision acquired Stony's Trucking Company, Inc. (Stony's), an Ohio-based corporation, and its wholly owned subsidiaries B-Right Trucking Company and B-Right Intermodal Transportation, Inc., by means of a purchase transaction pursuant to which all of the outstanding common stock of Stony's was exchanged for 20,000,000 shares of Corporate Vision common stock.
Stony's is a non-asset based common and contract carrier with operations spanning throughout the East Coast, Midwest, South and Southwest. The total consideration of approximately $4 million was comprised of 20,000,000 shares of Corporate Vision stock, with a fair market value of approximately $3.6 million, $50,000 in cash, additional issuance of 1,333,333 shares of Corporate Vision stock, valued at approximately $200,000, for merger and acquisition consulting services to a related party, and a $150,000 cognovit note. This transaction was accounted for as a purchase under SFAS No. 141 "Business Combinations", whereby the underlying assets acquired and liabilities assumed are recorded by the Company at their fair value. See Note 2 for further details on Accounting for Business Combinations under SFAS No. 141.
The aggregate purchase price has been allocated to the assets and liabilities of Stony's Trucking Company based upon their estimated fair market values as follows:
Assets Acquired: | |
Cash | $ -- |
Other current assets | 5,082,446 |
Property and equipment, net | 1,410,062 |
Goodwill | 7,165,558 |
Total Assets Acquired | 13,658,066 |
| | |
Liabilities Assumed: | |
Current liabilities | 9,620,566 |
Total Liabilities Assumed | 9,620,566 |
| | |
Total | $4,037,500 |
The number of CVIA Shares is subject to adjustment six and twelve months (an "Adjustment Date") after the acquisition date based on the future market price of the CVIA Shares. Specifically, in the event the CVIA Shares held by Mr. Gregory Gibson, Chief Executive Officer, on each Adjustment Date do not have a fair market value equal to or greater than $2,000,000, then the Company shall be obligated to issue Mr. Gibson additional shares of Company common stock sufficient to result in the fair market value of the CVIA Shares held by Mr. Gibson on the Adjustment Date, plus the additional shares issued as of the Adjustment Date, having a total value equal to $2,000,000. At each Adjustment Date, the fair market value of the Company's common stock shall be the average of the closing price for the common stock on the Adjustment Date.
A Right of Rescission Agreement, under which the Company has the right to rescind the Merger in the event Stony's is not able to obtain an unqualified audit opinion of its financial statements (other than a going concern qualification) or Key Bank accelerates its loan to Stony's, and Gibson has the right to rescind the Merger until December 31, 2002, subject to early termination of this rescission right if the Company's common stock trades at or above $0.50 per share for twenty-one consecutive days.
The proforma unaudited results of operations for the six months ended June 30, 2002 and 2001, assuming the purchase of Stony's Trucking Company had been consummated as of January 1, 2001 were as follows:
| | Six Months Ended June 30, |
| | 2002 | 2001 |
Revenues | $ 18,848,794 | $ 22,580,403 |
Net income (loss) | (8,337,567) | 37,789 |
Net loss per common share: | | |
Basic | (0.125) | 0.00 |
Diluted | (0.11) | 0.00 |
The pro forma results of operations are subject to change upon completion of the December 31, 2001 and 2000 audit of Stony's Trucking Company financial statements.
NOTE 4 - LONG TERM DEBT
During the six months ended June 30, 2002, the Company assumed debt in the acquisition of Stony's Trucking Company (See Note 3). The total debt amounted to approximately $5.3 million at the date of merger. All debt relating to the Stony's acquisition has been classified as current debt due to violations of loan covenants relating to under-collateralization of the debt. The subsidiary is in the process of working out an arrangement with the financial institution that is expected to result in a more favorable position for the Company.
Additionally, the Company entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt. At June 30, 2002, the Company has outstanding two interest rate swap agreements with commercial banks, having a notional amount of $1,500,000 and $450,000. Those agreements effectively change the Company's interest rate exposure on its floating rate notes due 2003 to a fixed rate of 9.23% and 9.45%, respectively. The interest rate swap agreements mature at the time the related notes mature. The Company is exposed to a credit loss in the event of nonperformance by the other parties to the interest rate swap agreements. However, the company does not anticipate nonperformance by the counterparties.
NOTE 5 - EARNINGS PER SHARE
| | Three Months Ended June 30 | Six Months Ended June 30 |
| | 2002 | 2001 | 2002 | 2001 |
| | | | | |
Net (loss) attributable to common shares | $ 350,299 | ($ 105,731) | ($ 7,993,550) | ($ 299,843) |
| | | | | |
Weighted average common shares outstanding | 75,205,669 | 26,537,657 | 66,745,967 | 22,350,596 |
| | | | | |
Basic and dilutive income (loss) per common share | $ 0.005 | $ (0.004) | $ (0.120) | $ (0.013) |
The Company's outstanding convertible preferred shares were not included in the computation of weighted average shares outstanding because the effect of their inclusion would be antidilutive.
NOTE 6 - INCOME TAXES
During the second quarter of 2002, the Company determined that it was eligible to take advantage of the five-year carry-back for federal income tax purposes. The Company has filed an amended tax return requesting a refund of approximately $450,000 for taxes previously paid by Stony's. This receivable will be recorded as part of the purchase price adjustment and thus will affect the cumulative effect of accounting change stated on the Company's Statement of Operations.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
In May 2001, the Company defaulted on a non-cancelable lease obligation, of which the term of the lease was through June 2002. The Company has estimated the settlement of this obligation to be approximately $55,000 that is the total of the lease payments to the end of the lease. This amount is classified as a current liability as of June 30, 2002.
The Company has a $250,000 judgment against it in the state of Oklahoma concerning the alleged guarantee of debt for a company that they were going to acquire. The acquisition never transpired and management feels the judgment does not have merit. Upon informal conversations with the individual holding the judgment, management estimates the issue can be resolved for approximately $15,000 and accordingly has recorded such liability as current at June 30, 2002.
The Internal Revenue Service filed a lien against Corporate Vision in March 2001 for $18,168. This amount represents delinquent payroll taxes. These payroll taxes are included in accrued payroll taxes on the balance sheet. During the first quarter of 2002, the tax liability was settled with the Internal Revenue Service by former directors of the Company. These former directors expect to be reimbursed by the Company for satisfaction of the lien, such amounts are still recorded as current liabilities.
On March 5, 2002, as part of the liabilities assumed in connection with the acquisition of Stony's Trucking company, the Company is liable to a customer of Stony's in the amount of approximately $375,000, and the customer is liable to Stony's in the amount of approximately $125,000, for a net amount owing of approximately $250,000. The amount owed the customer represents an insurance claim paid to Stony's in connection with the highjacking of one of the Company's trailers. The amount owed the customer is recorded as a current liability and the amount receivable from the customer is recorded in accounts receivable for the quarter ended June 30, 2002. The Company has withheld payment pending a law enforcement investigation of the highjacking.
In June 2002, the Company was named in a lawsuit filed by Southbridge Group, Inc. In the lawsuit, the plaintiff seeks $33,000 for commissions allegedly due under a Nonexclusive Funding Procurement Agreement executed in February 2001, before current management of the Company assumed office. The Company contends that the commissions are not owed because the conditions for payment of the commissions have not occurred. The Company intends to defend the suit vigorously.
Stock Issuance
Three forward stock splits have occurred since the issuance of the Series A non-cumulative convertible preferred stock, and the number of shares of preferred stock was adjusted only with respect to one of such stock splits. If the number of shares of preferred stock were adjusted proportionately for all three stock splits, the number of shares of preferred stock outstanding as of December 31, 2001 would have been 611,556 shares. The Company is in the process of investigating the exact terms of the preferred stock so as to determine whether the preferred stock holders of record are entitled to receive additional shares of preferred stock as a result of the stock splits. The Company does not believe that the holders of preferred stock are entitled to the issuance of additional preferred stock in connection with the stock splits. However, this issue is unresolved at present.
While it is not possible to predict the ultimate outcome of the matters discussed above, the Company believes that any losses associated with any such matters in excess of what has already been accrued will not have a material effect on the Company's business, financial condition or results of operation.
NOTE 8 - RELATED PARTY TRANSACTIONS
At June 30, 2002 approximately $1,700,000 was owed to Gregory Gibson, the Company's chief executive officer, and other former owners of Stony's.
At June 30, 2002, the Company was indebted to Richard D. Tuorto, Sr. in the amount of $50,000 pursuant to a note dated March 5, 2002 that bears interest at 8.5% per annum. The note provides for monthly payments of interest only, and the full payment of all principal and accrued interest on March 5, 2003.
During the first quarter of 2002, the Company received a cash injection totaling $50,000 by means of a promissory note to the chairman of the Board. This was to help initiate the growth of CV Transportation, Inc., a new subsidiary to the consolidated financial statements.
During the quarter ended June 30, 2002, the Company paid $25,000 of a cognovit note due to Gregory J. Gibson which had an original principal amount of $150,000.
On May 1, 2002, a company controlled by William L. Tuorto loaned the Company $9,000 pursuant to a note that bears interest at 8.5% per annum and matures on September 1, 2002.
On May 7 and 13, 2002, William L. Tuorto loaned the Company $5,000 and $10,000, respectively, pursuant to notes that bear interest at 8.5% per annum and matures on October 7 and 13, 2002.
On April 16, 2002, a company controlled by Richard D. Tuorto, Sr. sold certain equipment to CV Transportation, Inc., a subsidiary of the Company, in consideration for a note for $100,000 that is due August 16, 2003.
NOTE 9 - SUBSEQUENT EVENTS
In July 2002, the Company issued 100,000 shares of restricted common to each of three employees as bonuses.
In July 2002, the Company borrowed $12,266.54 from an unrelated party, and pledged 141,536 shares of its restricted common stock to secure the loan.
In July 2002, the Company borrowed $28,500 from an unrelated party, and pledged 600,000 shares of restricted common stock to secure the loan.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements in this Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2002 on Form 10-QSB, may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements, expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed herein.
The words "believe", "expect", "anticipate", "seek" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
Results of Operation
Revenues
Revenues in the three and six months ended June 30, 2002 were $10,774,003 and $13,764,005, respectively, as compared to revenues of $72,393 and $72,451 in the three and six months ended June 30, 2001. The substantial increase in revenues in 2002 compared to the same periods in 2001 was attributable to the Company's acquisition of Stony's on March 5, 2002. The Company has two operating subsidiaries -- Stony's and SRR. SRR's revenues were adversely affected by the decision of a significant customer to process its waste internally.
Costs and Expenses
Cost of sales in the three and six months ended June 30, 2002 were $9,431,823 and $12,054,403, respectively, as compared to cost of sales of $19,720 in both the three and six months ended June 30, 2001. Selling, general and administrative expenses in the three and six months ended June 30, 2002 were $1,278,394 and $2,336,707, respectively, as compared to selling, general and administrative expenses of $171,622 and $365,793 in the three and six months ended June 30, 2001. The substantial increase in operating expenses was the result of increased levels of business resulting from the Company's acquisition of Stony's in March 2002. General and administrative expenses were also higher than normal due to unusual, nonrecurring expenses associated with the acquisition of Stony's.
Operating Loss
The Company had operating income/loss of $63,786 and ($627,105) in the three and six months ended June 30, 2002, as compared to operating income/loss of ($118,949) and ($313,062) in the three and six months ended June 30, 2001. The Company reported operating income in the quarter ended June 30, 2002, as compared to operating losses in the six months ended June 30, 2002 and the prior year's periods, as a result of seasonally strong operating performance at the Company's Stony's subsidiary.
Other Income (Expense)
The Company incurred net interest expense of ($163,487) and ($200,887) during the three and six months ended June 30, 2002, as compared to ($526) in both the three and six months ended June 30, 2001. The increase in net interest expense was attributable to increased levels of borrowing resulting from the Company's acquisitions of Stony's in March 2002 and SRR in June 2001.
Net Income
The Company had net income/loss before cumulative effect of accounting change in the three and six months ended June 30, 2002 of ($99,701) and ($827,993), respectively, as compared to a net losses of ($105,731) and ($299,844) in the three and six months ended June 30, 2001. The substantial improvement in net income in the quarter ended June 30, 2002 was the result of seasonally strong operating performance at the Company's Stony's subsidiary, and an income tax refund of $450,000. During the six months ended June 30, 2002, the Company recorded a charge for cumulative effect of accounting change in 2002 of ($7,165,558). As a result, the Company incurred a net loss of ($7,993,550) in the six months ended June 30, 2002.
Liquidity and Capital Resources
As of June 30, 2002, the Company had cash and cash equivalents of $35,382, as compared to cash of $3,439 as of December 31, 2001. As of June 30, 2002, the Company had a net working capital deficit of ($5,732,517), as compared to a net working capital deficit of ($5,292,124) at March 31, 2002 and ($777,704) at December 31, 2001. The primary reason for the substantial decline in working capital since December 31, 2001 was the acquisition of Stony's on March 5, 2002. At the time of its acquisition by the Company, Stony's had a substantial working capital deficit largely resulting from the classification of about $5,500,000 of long-term debt as a current liability.
As of June 30, 2002, the Company's two business segments were operating at a slight loss, and the Company had no availability under its line of credit with Key Bank, N.A. Accordingly, the Company was dependent on the issuance of its common stock for some managerial and legal services, and depends on short-term loans from third parties, including its officers and directors, for the funds to satisfy miscellaneous expenses. For the foreseeable future, the Company expects that it will be required to acquire necessary administrative services and satisfy its indebtedness by issuing shares of its common stock.
Going Concern
The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company had significant unpaid accounts payable and accrued liabilities, and is in default on certain long-term debt to the principle lender to the Company's trucking operations. These factors create an uncertainty about the Company's ability to continue as a going concern. The Company's new management has provided operating capital to the Company and has developed a plan to raise additional capital and acquire companies with operations that generate cash flow. The ability of the Company to continue as a going concern is dependent on the success of this plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
The Company is a party to a considerable number of legal proceedings. The Company's disclosure of pending legal proceedings contained in Item 3 of its Annual Report on Form 10-KSB for the year ended December 31, 2001 is hereby incorporated by reference. In addition, to the matters disclosed in the Form 10-KSB, the Company is a party to the following additional litigation matters:
In June 2002, the Company was named in a lawsuit filed by Southbridge Group, Inc. In the lawsuit, the plaintiff seeks $33,000 for commissions allegedly due under a Nonexclusive Funding Procurement Agreement executed in February 2001, before current management of the Company assumed office. The Company contends that the commissions are not owed because the conditions for payment of the commissions have not occurred. The Company intends to defend the suit vigorously.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
In connection with the Company's acquisition of Stony's on March 5, 2002, the Company executed a promissory note in the amount of $150,000 payable on April 5, 2002 to the sole shareholder of Stony's, who is not the Company's chief executive officer. The Company has paid $25,000 on the note, and the remainder of the note remains in default.
Prior to the Company's acquisition of Stony's, Stony's and its subsidiaries had received a notice of default from their principle lender, Key Bank, N.A. As of May 17, 2002, the default had not been cured, although the Company has been in negotiations with Key Bank, N.A., and believes that a forebearance agreement will be negotiated with Key Bank., N.A. In the event Key Bank, accelerates its indebtedness, or otherwise takes legal action to collect its loans, such action would have a materially adverse impact on the Company's ability to operate. In the event of an acceleration by Key Bank, N.A., the Company has right to rescind its purchase of Stony's.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | CORPORATE VISION, INC. |
Date: August 14, 2002 | /s/ Gregory J. Gibson |
| By: Gregory J. Gibson, Chief Executive Officer |
